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Question 3: Raya Corp. needs to purchase new plastic moulding machines to meet the demand for...
Section 3: Capital Asset Pricing Model and Cost of Capital (32 marks) a. Suppose the risk...
Section 3: Capital Asset Pricing Model and Cost of Capital (32 marks) a. Suppose the risk free rate, FRF is 5%, the return on the market, rm is 14% and beta of stock A is 1.4, what is the required rate of return, rs of stock A? (1 mark) b. If the required rate of return on stock M, is 17%, the risk free rate is 5% and the return to market is 15%, what is the beta of stock...
QUESTION 4: A firm has a capital structure containing 40 percent debt, 10 percent preferred stock,...
QUESTION 4: A firm has a capital structure containing 40 percent debt, 10 percent preferred stock, and 50 percent common stock equity. The firm's debt has a yield to maturity of 9.50 percent. Its preferred stock's annual dividend is $7.50 and the preferred stock's current market price is $50.00 per share. The firm's common stock has a beta of 0.90 and the risk-free rate and the market return are currently 4.0 percent and 13.5 percent, respectively. The firm is subject...
3. a) Async Inc. and Sync Corp. both have the same EBIT of $3 million and...
3. a) Async Inc. and Sync Corp. both have the same EBIT of $3 million and tax rate of 30%. Async is all-equity financed with a cost of capital of 12%, whereas Sync has debt of $7.5 million. What is Sync's firm value using the M&M Proposition? a. $15,250,000 b. $17,500,000 c. $19,750,000 d. $25,000,000 e. $27,250,000 3. b) ____________ states that the value of a firm is independent of the firm's debt-equity mix in its capital structure. a. M&M...
2. Falon Corp. is issuing new common stock at a market price of $28. Dividends last...
2. Falon Corp. is issuing new common stock at a market price of $28. Dividends last year were $1.30 and are expected to grow at an annual rate of 7 percent, forever. What is Falcon's cost of common equity capital? 3. Belton Distribution Company is issuing a $1,000 per value bond that pays 7 percent annual interest that is paid semiannually and matures in 15 years. Investor are willing to pay $958 for the bond. The company is in the...
QUESTION 3 (a) A company finances its operations with 40 percent debt and 60 percent equity....
QUESTION 3 (a) A company finances its operations with 40 percent debt and 60 percent equity. The annual yield on the company’s debt is rd = 10% and the company’s tax rate is T = 30%. The company’s common stock trades at Po = K55 per share, and its current dividend of Do =K5 per share is expected to grow at a constant rate of g = 10% a year. The flotation cost of external equity, if it is issued,...
Question 6 (1 point) A firm has an effective (after-tax) cost of debt of 3%, and...
Question 6 (1 point) A firm has an effective (after-tax) cost of debt of 3%, and its weight of debt is 40%. Its equity cost of capital is 12%, and its weight of equity is 60%. Calculate the firm's weighted average cost of capital (WACC). [Enter your answer as a percentage rounded to two decimal places.] Your Answer: Answer
QUESTION 4 A firm has determined its optimal capital structure which is composed of the following...
QUESTION 4 A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Target Market Proportions 20% Source of Capital Long-term debt Preferred stock Common stock equity 10 70 Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of 2 percent of the face value would be required in addition to the discount of $40. Preferred Stock: The firm has determined it...
Q.1) Atlanta plc has recently developed an innovative new range of equipment that is expected to...
Q.1) Atlanta plc has recently developed an innovative new range of equipment that is expected to lead to the company growing rapidly. It is expected that the company will grow at 12% per annum for five years. Over time, as the market share of this new equipment increases, the firm's growth rate will reach a steady state. At that point, the firm may grow at 2% per annum. Assume that the market required rate of retum on the stock is...
SECTION B Answer any FOUR questions in this section. Each whole question carries FIVE marks Acme...
SECTION B Answer any FOUR questions in this section. Each whole question carries FIVE marks Acme Corporation has a beta of 2.0. The standard deviation of the market portfolio is 20% and Acme has a standard deviation of 50% a. Estimate the correlation between Acme and the market portfolio (3 marks) (2 marks) b. What proportion of Acme's risk is specific risk? Safecorp currently has £500 million in debt and the market value of its equity is £800 million Beta...
Question 1 3 pts Winston Corporation is evaluating a new project that will require an increase...
Question 1 3 pts Winston Corporation is evaluating a new project that will require an increase in accounts receivable of $80,000, an increase in inventory of $250,000, and an increase in accounts payable of $160,000. The change in networking capital for this project will be: $330,000 $170,000 +$170,000 -$490,000 MACRS Depreciation Allowances Property Class Year 3-Year 5-Year 7-Year 33.33% 20.00% 14.29% 44.45 32.00 24.49 14.81 19.20 17.49 11.52 12.49 11.52 8.93 5.76 8.92 7.41 8.93 4.46 Question 2 3 pts...
Section 3: Capital Asset Pricing Model and Cost of Capital (32 marks) a. Suppose the risk free rate, FRF is 5%, the return on the market, rm is 14% and beta of stock A is 1.4, what is the required rate of return, rs of stock A? (1 mark) b. If the required rate of return on stock M, is 17%, the risk free rate is 5% and the return to market is 15%, what is the beta of stock...
QUESTION 4: A firm has a capital structure containing 40 percent debt, 10 percent preferred stock, and 50 percent common stock equity. The firm's debt has a yield to maturity of 9.50 percent. Its preferred stock's annual dividend is $7.50 and the preferred stock's current market price is $50.00 per share. The firm's common stock has a beta of 0.90 and the risk-free rate and the market return are currently 4.0 percent and 13.5 percent, respectively. The firm is subject...
2. Falon Corp. is issuing new common stock at a market price of $28. Dividends last year were $1.30 and are expected to grow at an annual rate of 7 percent, forever. What is Falcon's cost of common equity capital? 3. Belton Distribution Company is issuing a $1,000 per value bond that pays 7 percent annual interest that is paid semiannually and matures in 15 years. Investor are willing to pay $958 for the bond. The company is in the...
Question 6 (1 point) A firm has an effective (after-tax) cost of debt of 3%, and its weight of debt is 40%. Its equity cost of capital is 12%, and its weight of equity is 60%. Calculate the firm's weighted average cost of capital (WACC). [Enter your answer as a percentage rounded to two decimal places.] Your Answer: Answer
QUESTION 4 A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Target Market Proportions 20% Source of Capital Long-term debt Preferred stock Common stock equity 10 70 Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of 2 percent of the face value would be required in addition to the discount of $40. Preferred Stock: The firm has determined it...
Q.1) Atlanta plc has recently developed an innovative new range of equipment that is expected to lead to the company growing rapidly. It is expected that the company will grow at 12% per annum for five years. Over time, as the market share of this new equipment increases, the firm's growth rate will reach a steady state. At that point, the firm may grow at 2% per annum. Assume that the market required rate of retum on the stock is...
SECTION B Answer any FOUR questions in this section. Each whole question carries FIVE marks Acme Corporation has a beta of 2.0. The standard deviation of the market portfolio is 20% and Acme has a standard deviation of 50% a. Estimate the correlation between Acme and the market portfolio (3 marks) (2 marks) b. What proportion of Acme's risk is specific risk? Safecorp currently has £500 million in debt and the market value of its equity is £800 million Beta...
Question 1 3 pts Winston Corporation is evaluating a new project that will require an increase in accounts receivable of $80,000, an increase in inventory of $250,000, and an increase in accounts payable of $160,000. The change in networking capital for this project will be: $330,000 $170,000 +$170,000 -$490,000 MACRS Depreciation Allowances Property Class Year 3-Year 5-Year 7-Year 33.33% 20.00% 14.29% 44.45 32.00 24.49 14.81 19.20 17.49 11.52 12.49 11.52 8.93 5.76 8.92 7.41 8.93 4.46 Question 2 3 pts...
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